‘The Big Move’ is a MarketWatch column that looks at inscriptions and real estate, from navigating to searching for a new home to applying for a mortgage.
Have a question about buying or selling a home? Want to know where your next movement should be? Email Jacob Passy at TheBigMove@marketwatch.com.
Shortly before the pandemic, my husband took a job that required us to move out of the state; however, we still did not need it because of the telework. My husband and I have two young children. Because of our telework, my parents-in-law watched our children at home and often stayed over for days at a time.
My husband and I asked his parents to move in with us, as soon as we moved. In theory this is a great plan for everyone involved: free childcare for us, reduced costs for them and we all enjoy each other’s company.
The dilemma is that my $ 50K laws have flooded their home. There are water penetration issues and water foundations in the home that make it not worth about $ 100,000, at best. My father-in-law is a very disciplined man and he doesn’t think walking out is the right thing to do. He thinks that continuing to pay the mortgage is the best plan, even if they are not living at home.
A short sale, even if a buyer is willing to address the issues, would be disastrous for whatever savings they have. My husband feels that walking out and taking credit for the closure is the best option. They would live with us and the mortgage payment would no longer hinder them.
In addition, my husband is the only child and named executor of the estate. My husband realizes that every time his father dies (he is 71), it is the home that will be handled. Should my father-in-law continue to pay or go out? Are there other options we should be considering?
An important reminder in your letter is that even when house values are rising at a higher pace, more Americans are still getting more out of their mortgages than their homes are worth, known as “being flooded”. on a house.
Millions of Americans found themselves in this position in the wake of the subprime mortgage crisis caused by the Great Recession. But while house prices have risen – in many cases to modern high temperatures – some 1.6 million homes are still in negative equity as of the third quarter of 2020, according to the latest data available from CoreLogic
This represents about 3% of mortgaged homes nationwide.
Walking away from a flooded house is a bad advisory move, no matter which way you cut it. And practically any financial expert would recommend your family to avoid it at all costs.
First, foreclosures are truly disastrous for a homeowner’s credit score, and remain in a person’s credit file for seven years. You may be wondering, what difference does it make? Well, if your new living arrangement doesn’t work out? Your family and your laws were just spending short periods of time together – that’s very different from living together permanently.
If your laws decide they need their own place, they may have difficulty qualifying for rent with their low credit score after ring-fencing. Are you and your husband ready to act as their guarantor in such a situation?
Foreclosure is not a prison-free card. You have the possibility to write off a short sale because it would harm your savings laws, but that’s exactly what would happen with a closure.
“Depending on the laws in their own state, the lender could foreclose on the loan, sell the property, and come after the parents for a default judgment – the difference between the sale price and the amount the loan was due plus taxes, insurance, fines and fees, ”said Rick Sharga, a veteran in the mortgage industry and executive vice president of real estate data firm RealtyTrac.
Don’t miss: I’m planning to retire soon. Should we sell our house at high prices – and rent for two years?
Federal law specifies that retirement savings in company-sponsored retirement accounts as 401 (k) s are exempt from decoration by creditors in the event of a deficit judgment. Some states extend this same courtesy to self-directed retirement accounts.
There are also moral and ethical considerations. Your laws sign an agreement with the mortgage lender, so it is understandable that your father-in-law feels obligated to end the deal. In addition, research shows that pre-closure can mislead property values of nearby homes.
What to do instead? Well, for a startup, you should all explore whether your laws qualify for any forms of assistance to make the necessary repairs to their home to bring it up to a sellable state. If either of your laws is a military veteran, they may be eligible for assistance through Operation Homefront. Other resources they can investigate for financial assistance include the National Association of Area Agencies for Aging and Habitat for Humanity.
I also think you should reconsider a short sale, and see if your ‘in-laws’ mortgage server would agree to a reduced amount to pay off the mortgage. Servants can still go after your laws to sell the remaining balance on the loan after the sale – although that depends on the state – but as I said, that is also true of foreclosures.
“An alternative could be a ‘deed in lieu of foreclosure,’ whereby they surrender the house to the bank without going through the ring-fencing process, perhaps to compensate for the bank’s promise to waive any shortfall,” said Eric Dunn , director of litigation. by the National Housing Law Project.
A short sale or deed in lieu of credit would affect ‘laws’, but would be even more severe than the blow they will take from an enclosure. And with either option, you must agree to the server.